Eastern Condiments Private

Limited (A)

06/2014-5981
This case was written by Indira Pant, under the supervision of Paddy Padmanabhan, the John H. Loudon Chaired
Professor of International Management, Professor of Marketing, both at INSEAD. It is intended to be used as a basis
for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
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On a hot Sunday morning in July 2008, Anjan Dasgupta, Sales and Marketing Head of Eastern
Condiments Private Limited (Eastern) pulled into the parking lot of the company’s headquarters
in Kochi, a major port in India’s southern state of Kerala. It had only been three months since he
joined Eastern and already he was confronted with the biggest challenge of his career. He
hurried to his desk and turned on his computer. He knew the numbers for the first quarter of
2008-09 would be waiting for him. He needed them for his meeting with Navas Meeran, Vice
Chairman of Eastern, on Monday morning.

Navas’ father, Mr M.E. Meeran, Chairman and Managing Director of Eastern, had built the
company into one of India’s leading branded spice producers. In 2008, Eastern’s workforce of
1100 – employed in four factories and 12 locations in India and overseas – generated a turnover
of INR11.95 billion2 and operating profit of INR 167 million.3 The company dominated the
spice trade in Kerala and had begun expanding into other parts of the country as well as
overseas (see Exhibit 1). Navas, who joined the company in 1995, had personally spearheaded
Eastern’s national and global expansion.

The most promising new market for Eastern was the neighbouring state of Karnataka. That was
five years ago. Despite favourable market conditions, profit numbers from Karnataka were
disappointing. Of greater concern were the operational shortcomings. Stock pilferage, irregular
accounts and high salesperson turnover were daily irritants. Navas felt certain that the Karnataka
market had huge potential and had hired Anjan to turn the situation around. As Anjan scrolled
down the numbers flickering before him, his worst fears were confirmed. Far from any
improvement, the Karnataka numbers had deteriorated further. At Monday’s meeting, Navas
would expect Anjan to spell out a course of action to put Karnataka back on track. It was going
to be a long day.

The Indian Spice Industry

In 2008, the Indian spice industry produced almost 4.4 million metric tons of spices for the
domestic as well as global market. In fact, India was the largest producer and exporter of spices
in the world, with the top 19 players selling just under INR 120 billion worth of spices and
spice-related products.4

The use of spices goes back thousands of years to the world’s earliest civilizations. As far back
as 2600 BC, labourers building the great pyramid of Cheops were given spices as it was
believed that they provided strength. India’s role in the spice trade was central even then. The
country’s climate was ideally suited to spice cultivation and there was an abundance of spices in
its cuisine as well as in its traditional medicines and cosmetics.

Since the early 1990s India had experienced rapid population growth, urbanization and rising
disposable incomes. This led to an explosion in demand for value-added staples such as spices.
With production trailing demand, spices were one of the more profitable agricultural
commodities in the country. The spice industry in India was dominated by thousands of small,

1 INR stands for Indian Rupees. US$1=INR 41.87 on July 27, 2008
2 For financial year ended March 31, 2008
3 Company documents
4 Spices Industry Report 2012, Dun & Bradstreet India Services

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local players selling loose, unpackaged spices. Gradually, a few companies created a market for
packaged and branded spices. In 2008, one of the largest was Eastern.

Early Years (1968-2003)

Kerala was India’s top producer of pepper, cardamom and ginger owing to its favourable
climate (see Exhibit 2). It was in this spice-rich southern Indian state that M.E. Meeran started
the Eastern Trading Company in 1968 to distribute a wide range of consumer products including
whole spices. A man with sharp business instincts, Mr Meeran realized that he needed to focus
on products that had perennial demand and the potential to add value. Spices, which found their
way into every Indian meal, seemed to be the ideal product.

At the time, consumers bought whole spices from small neighbourhood stores called provision
shops and ground them into powders in their homes – a laborious and messy operation.
Recognizing the opportunity this presented, Mr Meeran drove his truck to wholesale markets in
Kochi and bought whole spices at competitive prices. He invested in a small grinder and began
making turmeric, chili and coriander powders – the three most widely used spices in Indian
food. He packed the powders in small plastic bags and sold them to provisions shops in his
district. With steadily growing sales and healthy margins, he acquired two additional
distribution trucks and began supplying the neighbouring districts as well.

In 1983, Eastern set up its first full-fledged spice factory with 35 employees in Adimali, a small
town in Idukki which was the leading spice growing district in Kerala. In the same year, also in
Adimali, the company set up a coffee powder manufacturing facility (see Exhibit 3). Eastern
Condiments Private Limited was incorporated in 1989.

Following his success with “straight” or single spice powders, Mr Meeran set his sights on the
next value-adding innovation. He knew that customers bought straight spices and then blended
them at home. So in 1987 he began selling three blended spices – chicken masala5, meat masala
and sambar6 powder, catering to the tastes of the local Malayali7 population. All three were
hugely successful so he developed several more blends, patented his recipes, expanded his truck
fleet, and was soon covering a third of Kerala’s 14 districts.

From the very beginning, Mr Meeran realized that product quality would be crucial to success.
The company’s manufacturing facilities were designed to ensure high levels of hygiene,
freshness and consistent flavour. In 1992-93, Eastern set up its first lab to test quality. The lab
was later upgraded to conform to prevailing international standards – it was the only such lab in
Asia.

Navas joined the business in 1995. Father and son decided to focus on establishing production
capacity rather than chasing turnover growth. Despite repeated expansions at the Adimali plant,
the company faced severe capacity constraints, particularly for straight powders. So in 1995, Mr
Meeran set up a new factory in Theni, a small town not far from Adimali, in the adjoining state
of Tamil Nadu (see Exhibit 4). Over the next decade, Eastern expanded both its production
capacity as well as its product line to cater to the growing demand for value-added food

5 Masala, a word common to several Indian languages, meaning a blend of spices.

6 A lentil and vegetable hot and sour curry eaten all over South India.
7 Native inhabitants of Kerala speak the language Malayalam and are called Malayalis.

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products. The new products include more blended powders, pickles and rice-based instant mixes
(see Exhibit 5).

In Kerala, Eastern single-handedly created the market for branded spices. It was a high-risk
move, as it required a shift in deeply entrenched consumer habits. Consequently, the company
faced virtually no competition until the early 1990s. Then, drawn by Eastern’s success, several
small players entered the fray. However, their products were confined to straight powders that
were ground in small home-based machines and packed in unbranded plastic bags that were
sealed manually with candle wax. They could not match the quality and range of Eastern’s
products. Eastern’s revenues grew steadily from INR 100 million in 1991 to INR 286 million in
2003.8

Taking Kerala (2003-2008)

In 2003, the Meerans felt the company’s production infrastructure was ready to support rapid
growth. Eastern began its campaign in its home base and strongest market – Kerala. Over the
next five years, Eastern’s revenues grew almost seven-fold to INR 1.95 billion.9 Straight
powders accounted for just under 50% of revenue, although blended powders and other value-
added products gained prominence. The export market also grew at an impressive pace (see
Exhibit 6). During 2007/08, in Kerala alone, Eastern generated sales of INR 1.3 billion and had
a market share of 47% (see Exhibit 7).

The race to the top was not without a struggle. Eastern’s pioneering efforts threw the spotlight
on the size and profitability of the packaged spice market. The Indian Government reserved this
industry for small-scale manufacturers, which kept the big national and multi-national food
industry players at bay. However, hundreds of small traders entered the market, attracted by
what now seemed like a low-risk business opportunity. Only a few survived and none of them
came close to replicating Eastern’s success in Kerala.

Eastern’s bold pricing philosophy played a big part in its success. The growing season for most
spices was typically three to four months in the year. Being a large player with deep pockets,
Eastern was able to stock up during the harvest periods when prices were at their lowest.
Smaller players who had to buy off-season could not match Eastern’s prices. Eastern astutely
priced its products slightly higher than commodity prices, allowing them to rise and fall in
tandem with them. This strategy made it easier for consumers to switch from unbranded
products – they had to pay only a little more to get a more hygienic, well-packaged product.
Once they tried Eastern’s product, their consistent freshness, flavour and colour kept them
coming back for more. Several of Eastern’s competitors tried to copy this strategy but met with
limited success. They lacked the single most significant competitive advantage that lifted
Eastern to the top of the pack – its distribution system.

Eastern’s Owned Direct Distribution Model

Mr M.E. Meeran’s association with distribution dated back to the late 1960s when he distributed
spices and lentils to the small provision stores that dotted most of rural and urban India.
Typically, these were tiny shelf-lined spaces crammed with a broad range of food essentials

8 Figures for financial year ending on March 31st.

9 For financial year ended March 31, 2008

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with barely enough space for one person – usually the owner. In larger urban centres, retailers
spanned the entire spectrum from small mom-and-pop stores to large self-service grocery chains
(see Exhibit 8). Mr Meeran recognized that the distribution business could yield substantial
profits – only if it was run efficiently. In the 1970s, only the large multinational corporations
(MNCs) had understood how to profitably manoeuvre India’s complex web of wholesalers and
retailers. In order to learn how they did it, Mr Meeran convinced several of them, including
Nestle, Britannia and Unilever, to appoint him as their distributor. Over the years, Eastern had
built a small fleet of trucks, a pool of experienced staff and a rich understanding of the territory.
Since these MNCs did not have any existing distributor in the area, Mr Meeran was able to
secure their business.

The MNCs were demanding in terms of the service and data they required from distributors. A
quick learner, Mr Meeran picked up the procedures and control systems they used to plan truck
routes and inventory, optimize product placement at the retailers’ premises, reconcile stocks and
manage cash. So successful was he that by 1986 Eastern distributed the brands of most major
MNCs in Kerala.

The first Eastern spices rode on the same trucks as Nestlé’s milk powder and Britannia’s
biscuits. As the spice business grew, Eastern spun off its MNC clients to a separate company
and the trucks now carried only the company’s own spices. By this time Mr Meeran had
acquired a deep understanding of the distribution business. He knew that he had to keep tight
control over working capital – a task made more difficult because of the limited shelf-life of
Eastern’s spice range. Under Mr Meeran’s watchful eye, Eastern successfully adapted its
understanding of direct distribution to the nuances of the spice trade and in a few short years
evolved a disciplined and profitable distribution system.

Every Monday morning the Eastern truck fleet headed out of the Adimali factory fully loaded
with a carefully selected inventory of products. Carrying a salesman,10 a sales assistant and a
driver, the trucks followed a fixed route selling stock for cash. Approximately half the trucks
returned to the factory by Thursday evening and the rest arrived a day later. Each week on
Friday and Saturday, Mr M.E. Meeran and his Kerala sales manager would personally conduct a
day-long sales review. Over 10011 Kerala salesmen, sales assistants and drivers, who had
returned to Adimali the day before, attended this review. Product-wise and retailer-wise sales
were analysed, cash and stocks reconciled, routes and schedules adjusted, and fresh plans made
for the following week. At Adimali, the company had its own truck workshop and diesel pump,
so repairs and refuelling were also closely supervised.

The close involvement of the top management meant that distribution operations were efficient
and well managed. Mr Meeran was able to communicate his knowledge and experience to the
sales team who gradually acquired the necessary skills to forecast demand and plan weekly
inventories. His expertise in this process was without equal. Anjan recalled:

“Stocking trucks was an art and a science and Mr Meeran was the best at it. On one
occasion he felt very strongly that fish masala ought to sell very well in the

10 Eastern had an all-male salesforce.

11 In 2008, Eastern operated 75 trucks in Kerala, each carrying a minimum of 3 people – a salesman, a sales
assistant and a driver. Approximately half returned on Thursday and the rest on Friday.

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 Kozhikode12 market – that it could become the anchor product in that market – but
the salesman wasn’t pushing it. So during weekly review meetings Mr Meeran
focused on fish masala alone – for six months. The salesman realized he had no
choice but to push fish masala, which soon became a best seller.”

The routes were developed one at a time. Care was taken to understand what each truck would
carry, which shops would be covered and in what sequence. Initially, they carried virtually the
entire product range, which was later pruned, as the salesman developed an understanding of
what each retailer would buy. In fact, Eastern was remarkably astute in building its formidable
retailer network. They made sure their retailers wanted to push the Eastern product range just as
much as they did. As Mr Sivanandan, Eastern’s Company Secretary, explained:

“Our disciplined distribution reach meant that retailers were confident that the
Eastern truck would show up in their shop every week at the scheduled time. So they
needed to carry only one week’s stock and could turn around their inventory 52
times a year. Weekly deliveries meant the spices remained fresh. Competitors just
could not do this and their sales suffered.”

The success of this approach required a highly disciplined and experienced sales force. Navas
and his father only recruited salesmen from the local community around Adimali. Being a
relatively non-industrialized area, job opportunities were limited, so Eastern had no difficulty
finding salesmen. Furthermore, they only hired family members of people they knew personally.
This gave them a measure of control over the sales force, which helped the company to
implement its highly regimented approach.

Each salesman was trained intensively. A key objective of the training was to ensure that
salesmen knew precisely what was expected of them. The company achieved this by thoroughly
researching the sales potential of every retailer on a salesman’s route and setting sales targets
accordingly. The company would also focus on a few products every week and hone the sales
pitch using scripts. But the central theme to all training was instilling discipline and persistence
in the distribution team, as Anjan explained:

“Every week we hammered into the sales team a simple message – come rain or
shine they had to show up at the door of a retailer at the same time on the same day
of every week. We called it the “permanent journey”. They had to make the call
even if they came away empty-handed. We had an 11-week call model. Even after 11
consecutive zero-sale weeks, the salesman had to persist. However, on the 12th visit
his supervisor would join him to help him bring the retailer on board. But in most
cases the toughest of retailers were made productive by the ninth call.”

The weekly sales review meeting helped the company’s management reinforce this message and
keep a firm grip on the distribution reins. They also served another valuable purpose. Every
week, in the presence of top management and peers, each salesman had to report on how he had
fared in the week gone by. If a salesman excelled, Mr Meeran would reward him instantly with
a small sum of cash. This proved to be a great motivator. The reaction of the rest of the sales
team was equally important and followed a rather curious path, which Anjan described:

12 According to the 2001 Census of India, Kozhikode was the second largest city in Kerala after Kochi.

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 “If a salesman performed well, he would be given a “rain clap” – all the salesman
and the managers would start clapping softly like a “drizzle” and build up to a
thunderous “downpour”. Poor performers got a “slap clap” – a single clap that
was like a slap in the face – actually over a hundred slaps in the face, all at once. It
was brilliant! You had to see it to believe it. For example, when it was the turn of the
salesman who failed to sell fish masala, since Mr Meeran only asked about his fish
masala sales, he got a slap clap – virtually every week till he achieved his targets.
He got the message.”

A typical Kerala salesman earned a salary of INR 5,500 per month, a daily allowance of INR
200 and a commission of 1% on sales in excess of targets. On average, the commission cost the
company about 0.1% of turnover. Sales assistants and drivers earned less – a monthly salary of
INR 4,500 and a daily allowance of INR 100. Sales assistants also received a smaller
commission of 0.75%. Other running costs, including fuel and repairs, amounted to INR 20,000
per month. Depreciation and insurance charges added INR 15,000 per month to distribution
costs13 (see Exhibit 9). At these cost levels, the company’s margins were healthy. The company
also now had the production capacity to support strong growth. However, Kerala was a
relatively small market – which Eastern already dominated. Navas, who had begun to assume a
more central role, realized that Eastern’s continued growth had to come from outside Kerala.
Starting in 2003, he trained his sights on the adjoining state of Karnataka.

Karnataka and Beyond (2003-2008)

To keep logistics simple, Eastern first looked at the adjacent states of Tamil Nadu and
Karnataka – both large and relatively prosperous states. Since the Eastern brand appeal was
strongest among the Malayalis, Navas chose to pay greater attention to Karnataka, which had
the country’s highest concentration of Malayalis outside Kerala – 30% of the state’s population
(see Exhibit 10). With this core of Malayali consumers, Eastern soon gained a foothold in the
Karnataka market.

Eastern benefitted from a relatively low level of competition in Karnataka. There were several
small, localized brands with limited appeal. The only major competitor who was doing well was
MTR – a premium brand with products in the vegetarian segment14 catering to the palate of the
local Kannada population.15 Eastern knew that its vegetarian spice blends, which had been
developed for Kerala cuisine, would find limited success in Karnataka. It therefore pushed its
straight spices, keeping prices close to commodity prices – much as they had successfully done
in Kerala. Gradually, even in this highly competitive segment, Eastern gained traction as a
value-for-money alternative to MTR. However, it was in the non-vegetarian segment that
Eastern really made its presence felt in Karnataka. Eastern’s non-vegetarian product-line was
well established. Products like chicken masala and fish masala accounted for 40% of turnover in
Kerala. More importantly, they were less differentiated than the blends for vegetarian dishes –
the same blends worked all over the country. Eastern was the first to enter the non-vegetarian
segment in Karnataka and captured it effortlessly (see Exhibit 11).

13 Company sources
14 With a sizable vegetarian population, Karnataka was a major market for blended spices for vegetarian dishes.
While there was considerable overlap in the vegetarian dishes eaten in the four southern Indian states, there
was a subtle, but important difference in their flavours.
15 The native inhabitants of Karnataka speak the language Kannada and have their own distinctive cuisine

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In the initial stages, Eastern focused its efforts on Karnataka’s capital Bengaluru, a large and
growing metropolis with a population of 6,532,000.16 Bengaluru also had the largest
concentration of Malayali people in Karnataka. The market was therefore large enough to
warrant distribution infrastructure and Eastern located its warehouse in Bengaluru. Trade
acceptance was high because most small retailers in Bengaluru were Malayali.

With a small, contained territory, Eastern decided to replicate its highly successful Kerala
distribution model in Bengaluru. Senior management, including Mr Meeran and Navas,
personally helped set up operations. They transferred a sales manager from Kerala to co-
ordinate distribution. Locally hired salesman were given slightly different terms. While their
salary remained the same, their daily allowance was lower (INR 100/day) and commissions
were considerably higher at 3% of total sales.17 Drivers’ compensation was marginally lower at
INR 4000 per month with INR 70 as the daily allowance.

Eastern’s top management wanted tight control over operations so salesmen had to report back
on a daily basis unlike the weekly cycle followed in Kerala. The company used smaller
distribution vans with a capacity of 600 kg,18 which were better suited to shorter, urban routes
(see Exhibit 12). With the smaller vans, no sales assistants were needed. Smaller vans also
meant that Eastern’s depreciation and insurance charges dropped sharply to INR 2,500 per
month, as did running costs, which were about INR 4500 per month. Despite this very
conservative approach, a lower cost base and meticulous planning, the Karnataka operations
proved problematic from the very beginning (see Exhibit 13).

To begin with there was a lack of consumer pull. The brand was not very well known in
Karnataka so retailers resisted Eastern’s insistence on cash-based sales as competing brands
offered credit. Furthermore, many of the new local hires joined local distributor unions that
began causing trouble for the company. This was uncharted territory for Eastern. With personal
ties with all their employees in Kerala, the management diffused the threat of industrial action.
In fact, Eastern was the only non-unionized company of its size in Kerala, a state known for
intense trade unionism.

Being a new market, sales forecasting was difficult. The salesmen, most of whom were new, did
not have the expertise to stock their vans and Mr Meeran and Navas were not on hand to guide
them. To counter this, the company decided that the Karnataka operations would carry 60 days’
sales as inventory compared to 15 days’ sales carried in Kerala.19 Despite this, stocks ran out
periodically, adversely affecting sales. Also, the top management could not conduct the personal
weekly sales reviews in Karnataka that were so important for managing operations in Kerala.
Anjan highlighted their challenges in Karnataka:

“Our absence meant that decision-making got delayed. The sales team was also
under huge pressure to meet sales targets, as they had to report every evening with
their numbers. This led to high staff turnover and, more worryingly, to
mismanagement. Salespeople strayed from their earmarked territories and routes
trying to drum up business, and both stocks and cash went missing.”

16 Census of India, 1991

17 By contrast, in Kerala, salesman commission was paid on sales in excess of targets – typically 10% of sales
18 In Kerala the company deployed trucks with a capacity of 6 metric tonnes.
19 With interest rates at 12% pa, the inventory-carrying cost for a Karnataka van was substantial.

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Anjan and the Eastern top management were most concerned about the cost implications of the
mismanaged Karnataka operations. Anjan highlighted some of these:

“If distribution was handled efficiently, each van could follow a weekly cycle,
bringing running costs down to INR 3000 per month. Salesmen could drive their
own vans, cutting out driver-related costs altogether. Inventory carried could be
brought down from 60 to 45 days’ sales.20 Distribution had to be tightened.”

However, tightening up operations required top management oversight. It was clear that Eastern
could not replicate the closely supervised distribution model outside its home base. Navas,
however, remained keen to expand the brand nationally. The company therefore tried a new
“hands-off” approach in another high potential market – Mumbai, India’s commercial capital. In
2005, Eastern outsourced distribution for Mumbai to a partner for a margin of 20%. While the
operation was profitable, it soon ran into trouble on scale up issues. As Anjan explained:

“The Meeran family was deeply wedded to the distribution end of this business. It
was ingrained in their DNA. Eastern was not a brand and marketing-driven
company. It was distribution that excited them and so they were uncomfortable
giving it up. A year later, in 2006, they took back distribution for Mumbai.”

Following the Mumbai experience, Eastern acknowledged that, at the very least, they needed to
retain partial control over distribution. However, they did not have the funds to buy a fleet of
trucks to cover the country. They decided to tie up with Mahindra Logistics,21 from whom they
leased 450 trucks and drivers, paid for with private equity funds. During the period 2006-08, the
company entered every major state excluding those in Eastern India.

This strategy did not work either. While Eastern did not own the trucks, they still had to pay a
fixed rental per month. So the model remained very similar to the Kerala model that had already
been unsuccessful in Karnataka. In fact, the Karnataka problems were amplified in the northern
and western states. All of Eastern’s factories were in the south, so supply and inventory
management became more difficult. Control systems remained weak, so managing operations
was even harder because of the far-flung geographies. Consumer pull was worse in these states
than in Karnataka as the Malayali population, Eastern’s core consumers, was small. This
negatively affected revenues. At the same time the company had to pay Mahindra Logistics
lease rental for its trucks. This placed great pressure on the sales force and attrition rates were
very high.

Meanwhile, management challenges in Karnataka continued to intensify as revenues grew. By

2008, the company had 30 salesmen generating a sizable turnover of INR 9.67 million per
month in Karnataka.22 Anjan knew that the Karnataka market was too big to fail. He also knew
that the owned distribution model was not working. Handing over distribution entirely to a
distributor had not worked in Mumbai. The leasing model adopted in the rest of India had not
succeeded either. Anjan considered continuing with the existing owned model while increasing
commissions to 7% and reducing salaries by INR 500 per month. But he was concerned that the

20 30 days’ sales would ride on the truck and 15 days’ sales would be stored in company warehouses
21 Mahindra Logistics was the logistics arm of Mahindra & Mahindra, one of India’s leading multinational
industrial groups
22 Company documents

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fixed salary component of the salesman’s compensation remained too high. He described his
unease with this option:

“Even under the new terms, I didn’t think a salesman would shed his “employee”
mind-set. So if a better opportunity presented itself he would move. As a result, the
retailer would see a new face every few months. Also, the stock and cash pilferage
problem would remain unresolved. The vehicle and inventory still belonged to
Eastern so the challenges of supervising maintenance, controlling costs and
managing working capital also remained.”

Anjan had to come up with a proposal to revamp distribution in Karnataka. It had to be

profitable and scalable – and he had less than 24 hours to figure it out.

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 Exhibit 1
Financialsa for 2002/03 and 2007/08 (INR millions)

2002/03 2007/08
Sales 286 1,949
Other income 13 54
Operating profit/(loss) 21 167
Interest & bank charges 3 59
PBT 18 108
Net profit 11 59
Shareholder’s funds 54 752
Loan funds 27 729
Fixed assets 57 994
Current assets
o Cash 20 218
o Trade receivables 48 204
o Inventory 35 256
o Loans and advances 5 267
Current liabilities & provisions
o Current liabilities 35 65
o Provisions 42 161
a
Financial year-end March 31
Source: Company documents

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 Exhibit 2
Kerala – Facts and Figures

Formed in 1956 by amalgamating the

Malayalam language-speaking people, the
state of Kerala (derived from Keralam, the
land of kera or coconuts) lies along the
south-western coastline of the Indian
peninsula. Spread over 38,863 sq. km.
(15,005 sq. mi.), Kerala is flanked by the
Arabian Sea on the west and the mountains
of the Western Ghats on the east. The state
is divided into 14 districts with
Thiruvananthapuram as the state capital and
Adimali the port city of Kochi as the state’s
commercial centre. With its palm-fringed
beaches, lakes and rivers, tropical
rainforests and rugged mountains, Kerala
has often been called “God’s own country”.
Kochi With a population of 31.84 million in
2001,23 Kerala is one of the most densely
populated states in the country, with most of
its residents living in the fertile Western
coastal strip. It also has the highest literacy
rate – 90.86%, the highest life expectancy –
74 years, and the highest sex ratio – 1,091
women per 1000 men among the Indian
states. As a result, the state has consistently
scored among the highest of all Indian states
on the global Human Development Index
rankings. The principal religion is Hinduism
practiced by 56% of the population,
followed by Islam (25%) and Christianity
(19%). Unlike some other Indian states, Kerala has experienced relatively little communal or sectarian
conflict.

With a GSDP (Gross State Domestic Product) of approximately INR 1.75 trillion24 in 2007-08, Kerala’s
growth rate exceeded the national average. The economy of Kerala has transformed from being heavily
dependent on agriculture to one driven by the tertiary sector. In 2007-08, the tertiary sector accounted for
64.4% of GSDP, followed by the secondary sector (22.1%) and the primary sector (13.5%)25. Kerala is a
leading player in agricultural products including rubber, pepper, coir, spices, coffee, tea, coconut,
bamboo and cashew nuts. The unemployment rate exceeded the national average and was as high as 25%
in 2005.24 A survey in 2005 by Transparency International ranked it as the least corrupt state in the
country.

23 Census of India 2001

24 Economic Review 2007, Government of Kerala
25 Study on Kerala done by Frost & Sullivan for the Associated Chambers of Commerce and Industry in India in
2011

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 Exhibit 3
Mr M. E. Meeran, Navas Meeran and the Adimali factory

Mr M. E. Meeran (seated) and Navas Meeran

Adimali factory in 1983

Adimali factory in 2008

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 Exhibit 4
Timeline for Manufacturing Facilities

Year Nature of facility Location

1983 Straight powder factory Adimali - Kerala
1983 Coffee production facility Adimali - Kerala
1995 Straight powder factory Theni - Tamilnadu
1995 Pickle Adimali - Kerala
2002 Masala powder Adimali - Kerala
2003 Rice powder Adimali - Kerala
2004 Export packing division Okkal - Kerala
2005 Theni cold storage Theni - Tamilnadu
2005 Tea factory Kavalangad - Kerala
Source: Company documents
Exhibit 5
Photographs of selected Eastern products

Source: Company documents

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 Exhibit 6
Revenue Breakdown in 2002/03 and 2007/08 (INR millions)

By geography

100%
90%
80%
70%
60%
Total revenue: Total revenue:
50% INR 286 million INR 1.95 billion
40%
30%
20%
10%
0%
2002/03 2007/08
Kerala 96% 67%
Karnataka 4% 6%
ROI 0% 5%
International 0% 22%

By product group

70%

60%

50% Total revenue: Total revenue:

INR 286 million INR 1.95 billion
40%

30%

20%

10%

0%
2002/03 2007/08
Straight powders 64% 47%
Blended powders 28% 39%
Pickles 0% 2%
Rice-based products 0% 3%
Others 8% 9%

Source: Company documents

Copyright © INSEAD 14
 Exhibit 7
Operating Statistics in Kerala 2002/03 and 2007/08

2002/03 2007/08
Sales (INR millions) 274 1,304
Operating profit (INR millions) 19 191
PBT (INR millions) 15 139
Number of vehicles 35 75
Number of salesmen 112 238
Number of retailers 32000 40000

Market share of major brands in Kerala 2002/03 and 2007/08

50%

45%

40%
Total market: Total market:
35% INR 900 million INR 2.6 billion

30%

25%

20%

15%

10%

5%

0%
2002/03 2007/08
Eastern 28% 47%
Melam 8% 6%
Nirapara 0% 5%
Brahmins 0% 3%

Source: Company documents

Copyright © INSEAD 15
 Exhibit 8
Photographs of Typical Indian Retailers

“Mom and pop” shop (less than 50 sqft)

Traditional provision store (less than 500 sqft)

"General" store – an urbanized provision store

(less than 1000 sqft)

Urban supermarket (more than 1000 sqft)

Copyright © INSEAD 16
 Exhibit 9
Distribution Data for Kerala in 2007-08

Turnover (INR) 1,304,000,000

No. of vehicles 75
Salesmen 119
Sales assistants 119
Drivers 75
Salesman compensation
- Salary (INR/month) 5,500
- Daily allowance (INR/day for 25 days/month) 200
- Commission* (% of sales) 0.10
Sales assistant compensation
- Salary (INR/month) 4,500
- Daily allowance (INR/day) 100
- Commission* (% of sales) 0.075
Driver's compensation
- Salary (INR/month) 4,500
- Daily allowance (INR/day) 100
Running expenses including depreciation,
insurance, fuel & repairs (INR/month/vehicle) 35,000
No of days inventory carried by company 15
Interest rate on inventory (%/year) 12
* In Kerala, salesmen earned commissions of 1% (sales assistants 0.75%) of sales in
excess of targets. On average, the commission cost the company about 0.1% of
turnover.
Source: Company documents

Copyright © INSEAD 17
 Exhibit 10
Karnataka – Facts and Figures

Originally known as Mysore, this south-western state of

India was renamed Karnataka in 1973. Occupying
191,976 sq km, Karnataka is bound in the west by the
Arabian Sea and surrounded by five Indian states, namely
Kerala, Tamil Nadu, Andhra Pradesh, Maharashtra and
Goa. The centre of several powerful empires in ancient
and medieval India, Karnataka’s archaeological and
cultural heritage is rich and diverse. The state’s geography
is equally varied: the arid Deccan plateau, the lush and
hilly Western Ghats, and the fertile coastal region with the
deltas of two major river systems – the Krishna in the
north and the Kaveri in the south. The state is divided into
29 districts with Bengaluru as the capital city. It is the
largest city in Karnataka with a population of 6.5 million,
making it the third largest city in India.26
Karnataka is the eight largest state in India with a
population of 52.9 million,26 of which 50.9% are male and
49.1% female. Literacy rates hover around the Indian average at 66.6%, being higher for men (76.1%)
and lower for women (56.9%). Kannada is the official language of the state, which is native to about
65% of the population. The average life expectancy in 2001 was 64 years. About 83% of the state’s
population is Hindu, with much smaller numbers of Muslims (12%) and Christians (3%).
Karnataka’s Gross State Domestic Product (GSDP) was about INR 2.5 trillion in 2008-09,27 with the
tertiary sector’s share at 54.4%. The secondary and primary sectors were considerably smaller at 29.1%
and 16.5% respectively. The key drivers of the Karnataka economy are the technology and tertiary
sectors, resulting in one of the country’s highest per capita GSDP. Karnataka has emerged as a key state
in the area of knowledge-based industries such as IT, biotechnology and engineering as well as a centre
for science and R&D.
The capital city, Bengaluru, already a culturally diverse metropolis, is one of India’s fastest growing
cities. It is a hub for the IT, defence, aerospace and telecommunications industries. With several well-
regarded higher education institutions, the city has a large pool of skilled manpower that attracts
businesses – both Indian and foreign-owned.

26 Census of India 2001

27 Indian Brand Equity Foundation report on Karnataka, 2010. Exchange rate used: 1US$=INR 41.87

Copyright © INSEAD 18
 Exhibit 11
Operating Statistics in Karnataka 2002/03 and 2007/08

2002/03 2007/08
Sales (INR millions) 13 116
Operating profit (INR millions) (2) 1
PBT (INR millions) (2) (6)
Number of vehicles 16 30
Number of salesmen 16 30
Number of retailers 5000 11000

Market share of major brands

40%

35%

30%
Total market: Total market: INR
INR 550 million 1.7 billion
25%

20%

15%

10%

5%

0%
2002/03 2007/08
Eastern 2% 7%
MTR 35% 32%
Everest 15% 10%
Sakthi 5% 9%
Aachi 0% 5%

Source: Company documents

Copyright © INSEAD 19
 Exhibit 12
Photographs of Distribution Vehicles

Trucks lined-up outside Adimali factory

Kerala distribution truck

Capacity 6MT

Mumbai distribution van

Capacity 1000 kg

Karnataka distribution van

Capacity 600 kg

Copyright © INSEAD 20
 Exhibit 13
Distribution Data for Karnataka in 2007-08

Turnover (INR) 116,000,000

No. of vehicles 30
Salesmen 30
Sales assistants -
Drivers 30
Salesman compensation
- Salary (INR/month) 5,500
- Daily allowance (INR/day for 25 days/month) 100
- Commission (% of sales) 3
Sales assistant compensation
- Salary (INR/month) -
- Daily allowance (INR/day) -
- Commission (% of sales) -
Driver's compensation
- Salary (INR/month) 4,000
- Daily allowance (INR/day) 70
Running expenses including depreciation,
insurance, fuel & repairs (INR/month/vehicle) 7000
No of days inventory carried by company 60
Interest rate on inventory (%/year) 12
Source: Company documents

Copyright © INSEAD 21